Branchless Banking in the Heart of the Amazon Basin
McKay, C.
Banking Agents Fuel Economic Growth
Residents of Autazes, a small municipality of 30,000, find an inexpensive, convenient, and safe way to access their money regularly through the introduction of banking agents. As part of an agent research project conducted with the Center for Microfinance Studies at FGV (Fundação Getulio Vargas) and Planet Finance, CGAP's Claudia McKay explores how postal outlets contracted by Bradesco Bank are affecting this Amazonian town.
Autazes is a small municipality located in the Brazilian state of Amazonas, in the heart of the Amazon basin. About half of the 30,000 inhabitants live in the town and the rest live in 40 other small communities in the municipality. The state capital Manaus is 120km away and requires two major river crossings to reach. Public financial transfers and public service employment is an important source of income in Autazes; at a minimum, about 20% of the adult population receive monthly funds, such as public sector wages, pensions, and other social security benefits from the government.
Money Management in Autazes Prior to Banking Agents
Prior to the establishment of the first banking agent in Autazes, the municipality lacked a reliable way to receive government benefits, save money, withdraw cash or pay bills. A private twin-engine plane with armed security guards flew cash monthly from Manaus to pay public sector employees. Several men worked full time transporting money to and from Manaus on behalf of Autazes residents. “There was someone here who charged $5-10 to pay bills in Manaus. Sometimes the money vanished or the guy was robbed,” recalled Deputy Mayor Percilei Pantoja in 2004.
Banco Postal and the Beginning of Banking Agents
To overcome the extensive cost of providing financial services to the rural poor, financial institutions have turned to using banking agents to process traditional bank teller activities. Banking agents can be retail, lottery, or postal outlets and it is the owner or employee of the retail shop who conducts the transaction.
In the case of Autazes, the first banking agent was a post office. After a winning bid by Bradesco Bank to use post offices throughout Brazil to provide basic banking services, Banco Postal opened its doors in Autazes in April 2002. The demand for financial services was almost unmanageable as the post office suddenly became a mini bank branch with upwards of 600 transactions a day and its employees had to be retrained to answer banking questions and offer financial education to customers. Banco Postal was the only agent in Autazes for almost five years. During that time, it opened more than 8,000 accounts which accounted for approximately 36% of the adult population of Autazes.
Expansion of Banking Agents
In 2007, Bradesco added three banking agents in the town and established a local bank branch to manage liquidity for the agent business and serve business customers directly. Currently, there are seven banking agents in Autazes: Banco Postal, four Bradesco Expresso agents, a Caixa Economica agent and a Banco do Brasil agent that does withdrawals only.
As the number of agents has grown, the volume of transactions has started to level off. A total of 25,000 transactions were conducted in November. Two agents (including Banco Postal) clearly dominate with nearly 10,000 transactions each. Several agents complained that there is now too much competition.
Impact of Banking Agents
Not all the changes have been beneficial to the community. Due to the proliferation of consumer loans approved through a simple credit scoring model through Bradesco Bank, there is a general perception that loans are too easily acquired and repayment is difficult.
Most residents of Autazes, however, praise the banking agents. "Before Banco Postal, life was hard. Those who had money to spend went to Manaus. Since the banking agents have come, everything here has changed", explains Sandra Ferreira, a teacher in Autazes. Since the establishment of the Banco Postal, she is saving regularly and has started a family business with her husband. The agents’ services turned Autazes into a commercial and banking center for the region which has resulted in a 260% increase in retail stores as more residents spend their money in Autazes rather than travelling to Manaus.
Thank you Claudia for your clear and complete response. Peter
peter van dijk Indonesia
03 Aug 2010
Sustainability of banking correspondents
Hi Peter, The focus of this piece of research was very much on the business case for the small-scale agent (correspondent) and, to some degree, on the perspective of customers. We did not get into detail on the operational and financial sustainability from the banks' perspective. However, in Brazil, large private banks as well as public banks are certainly using correspondents. In fact, the bank that operates out of all the post offices is Bradesco Bank, the second largest private bank in Brazil. You are right that this is not perceived to be a massive revenue generator in Brazil. Banks seem to think of correspondents as cost savers rather than new revenue generators. Banks are required to receive boletos (bills) from customers wishing to pay them (the utility company pays a small fee to the bank for this service). This is an expensive undertaking when customers fill the banking halls to pay these bills. By using correspondents, banks have developed a cheaper channel to fulfill this obligation. Also, several banks do want to make a lot more money out of these channels they've built and are talking about pushing more loans and other higher profit-margin products through this channel. So they certainly are thinking of the correspondent channel as potentially more lucrative than it is today.
Claudia McKay CGAP United States
30 Jul 2010
Thank you Ms. McKay
Dear Ms McKay,
I know that customer deposits are protected, that is clear from the deposit contract with the banking agent who accepts it. And the agent takes responsibility for only a minor part of the losses, the main part being carried by the bank.
In my mind, that is where the main challenge comes in for sustainable microfinance--building an inclusive banking sector. Most, if not all partners in the Brazilian "correspondent banking" program were state-owned. Is that still the case? And the program as such has been incurring heavy losses from the beginning, at least that is what I heard some years ago. Has that situation changed? The presentation and the update did not explain much about its operational and financial sustainability.
Furthermore, in remote areas where poverty levels are high, where public security services are not present (or quite corrupt), criminality is not absent because of local community solidarity, at least that is not my experience.
Again, I am not disputing the results regarding the achievement of more inclusiveness in the Brazilian financial sector. But I am interested in discussing the sustainability of the instruments that are being heralded and promoted by CGAP around the world. That also goes for the Post. In most countries where it has been promoted for decades because of its potential, no substantial (complex, long-term) reform has been undertaken to transform postal banks into banks regulated and effectively supervised by finance ministries and central banks that still cooperate closely with the Post to maintain and expand services coverage.
With all due respect and kind regards, Peter
peter van dijk Indonesia
23 Jul 2010
Response to: Confirmation of high incidence robbery, fraud banking agents
Hi Peter,
Thanks for your comments. I was part of the CGAP team that put together the powerpoint you mention where we discuss high levels of robbery, staff and consumer fraud. I've recently returned from a follow-up trip. Robbery is certainly an issue but we found that staff and consumer fraud is much less than we originally thought. Also, all these various types of theft/risk do not directly harm the consumer. If an agent is robbed, the agent himself pays a certain amount before insurance covers the rest. The consumer's money is not at risk (and as the most common transaction is bill payment, which is free, they are not even impacted by higher prices). So we think the customer's money is safe with the banking agents in Brazil. Furthermore, this article specifically refers to a remote community, Autazes, in the Amazon. None of the agents there had ever been robbed or were worried about being robbed. Everyone knows everyone else and a thief would be ostracized. So, although there are certainly risks in the system, we feel overall that the agents (especially post offices) make a positive contribution to financial inclusion in Brazil.
Claudia McKay CGAP United States
10 Jun 2010
Post office infrastructure
Dear Arpan,
The Post office infrastructure, together in a collaboration with the Finance Ministry, represents by far the largest Microfinance operation in India but is structurally ignored by the Microfinance community. Paying lip service by naming it in the introduction of a study (over the last ten years or so) is not enough.
Reforming Post and the Government savings programs around the world and integrating them into the banking sector under central bank supervision is a formidable job of a committed alliance. That alliance is not being formed in India or in most places where it should.
Kind regards, Peter
peter van dijk Indonesia
31 May 2010
Value addition to post office infrastructre
I have noticed something common with many agency banking models that they target post offices due to their wide coverage. The typical PO infrastructure in developing countries is run down. It can be given a new lease of life by innovation not only by variations of mobile banking models but also leasing out their infrastructure to parcel delivery firms, providing short-term storage facilities etc. In a nutshell, new forms of banking can open up new forms of doing business in all other sectors.
John Ngahu IFC Mozambique
31 May 2010
Under the banking umbrella
This cost effective method is an ideal way of bringing all, particularly rural poor under the ambit of banking services. Ways could be explored to appoint retired school teachers as agents and the ubiquitous grocers' shop as banking center with flexible timings. Apart from banking the centers may provide information on selling price of produce, demand etc, as the networking is available every where.
Sreenivasan Gopalakrishnan India
20 May 2010
Confirmation high incidence robbery, fraud banking agents
I strongly recommend reading of the Powerpoint presentation CGAP made illustrating its recent update on the analysis of branchless banking in Brazil. A very high incidence of Robbery, Staff Fraud and Consumer Fraud was identified, which is a confirmation of earlier results some four years ago.
With this knowledge please reassert your opinions and make sure that the money of the rural poor are safe and soundly managed and design a regulatory and supervisory framework.
Regards, Peter
peter van dijk Indonesia
15 May 2010
Banking for all foster sustainable development
The only sustainable social and economic development starts when there is total participation of those on the base of the economic pyramid. This initiative of providing banking services to those in peri-urban and rural areas will be a pull factor to other economic sectors to start providing goods and services such as good health care, infrastructure development, growth of the SMEs and manufacturing, thereby reducing the cost of living.
There is not a single economy that has succeeded well without its poor populace moving into a middle class of the economy.
Regardless of the rich resources at the state's disposal, if the poor are just economic spectators then, those resources will translate into nothing.
Master Mushonga Kingdom Bank Limited Zimbabwe
09 May 2010
Banking Agents Needed to Reach Our Communities in Nigeria
I read with excitement the engagement of agents to propel the outreach of the communities where the very active poor locates. We are currently doing analysis on how we need to get started and penetrate many villages in our operations region of the Niger Delta in Nigeria.
Christian Mboho Brooks Microfinance Bank Nigeria
05 May 2010
Innovative Drive
Post offices have a huge network in most of the countries in the world. This particular case shows how post office infrastructure could be effectively shared to roll out banking facilities in remote corners.
Banking Through Networks of Retail Agents
CGAP Focus Note No. 47 examines whether technology can enable secure and remote interaction between banks and their customers
Autazes is a small municipality located in the Brazilian state of Amazonas, in the heart of the Amazon basin. About half of the 30,000 inhabitants live in the town and the rest live in 40 other small communities in the municipality. The state capital Manaus is 120km away and requires two major river crossings to reach. Public financial transfers and public service employment is an important source of income in Autazes; at a minimum, about 20% of the adult population receive monthly funds, such as public sector wages, pensions, and other social security benefits from the government.
Banco Postal and the Beginning of Banking Agents 
Impact of Banking Agents 
